Everyday, businesses in product industries deal with inventory, generally consisting all of the goods and materials held by a business for future sale, use or other type of transfer. Typically, these businesses must engage in some type of inventory control to manage and maintain the proper amount of each good in stock or to provide the required service level of a product at a minimum cost. In one type of traditional inventory control system, a push system, an order for goods is issued for fulfillment in specified quantities, by specified due dates, based on estimated lead-times. In another type of traditional inventory control system, a pull (consumption based) system, an order is placed with the supplier when the on-hand inventory balance reaches a specified level.
These traditional methodologies of inventory procurement and management are generally transaction intensive, requiring many manual processes in order to keep customers supplied with the stock they need for future sale, use, or other type of transfer. Changes originating from engineering, define, and manufacturing result in a mismatch between the scheduled date and quantity, and the actual needed date and quantity. Due to changes in scheduling, engineering, and line stoppages, a mismatch often exists between the scheduled due date and/or the quantity, and the actual need date and quantity.
Administrative transactions, such as those entailing Change Orders and/or new Purchase Orders, adjust existing orders to account for these mismatches. New Purchase Orders may also be created to realign the needs of the customer with the inventory received from the supplier. While these administrative transactions seek to help control inventory and satisfy customer demand, the transactions themselves are expensive and wasteful in terms of resources. As an overhead cost, these transactions add no value to the end products of the customer.
In order to keep from running out of stock of a needed good and missing the delivery of a product incorporating the good to the customer as a result, it is common for suppliers to build excess inventory into their inventory control system to serve as a buffer to protect the supplier from being unable to deliver the required products. Additionally, the customer simultaneously orders and stores extra inventory to buffer the suppliers inability to consistently deliver the required products. This excess inventory is an economic liability for a number of reasons. First, excess inventory is costly for both the supplier and customer, as it ties up valuable, limited resources, such as space, materials, money, capacity, etc. Second, excess inventory exposes the manufacturer of the products to scrapage and rework in the event of a change in the configuration of a good. Third, excess inventory can pose a safety risk in terms of blocking aisles in storage areas or warehouses, as well as slowing down work flow, and reducing the efficiency at which the products can be produced and supplied.
Lean inventory systems, developed from lean manufacturing principles, can help address some of the problems associated with excess inventory and the waste created thereby. In lean inventory management systems, the emphasis is on real customer demand, which pulls products through the system, as they are needed. As such, lean inventory systems are a type of pull system. In traditional lean inventory systems, the time required to produce a particular good is matched as closely as possible with the rate of customer demand, thus, reducing excess inventory. Generally, the rate of customer demand is based upon projections, such as usage from a previous measured time period. But because the rate of customer demand can be more dynamic than a given projection, it is difficult, if not impossible, to always match production delivery dates and quantities with actual customer demand.